Why is the market dropping?

Why is the market so bad today? It was also dropping toward the end of last week. I am just trying to understand the bigger picture. Is it because of the likely federal interest rate hike coming up? Other reasons?

To calculate “normal”, I look at 3 month realized volatility (std deviation is a good proxy over the short term) of the S&P (ETF: SPY). You can add realized vol as an indicator here: https://www.tiingo.com/g/spy

3-month (63-day vol) is about 7.3%. This is an annualized number, so a 1 standard deviation move for the year is +/- 7.3%.

But if we want to see what’s “normal” for a daily move, we can divide it by the square root of 252, or approximately 16. The number 252 comes from the typical number of trading days in a year.

So
7.3%/16% = .45%. So a move +/- 0.45% is only 1 standard deviation. You can use implied vol if you want to get move advanced!

Well, the market didn’t really “drop”. These are normal fluctuations. If the market were down 2-3% in a day, that would be more noteworthy.

Yeah, Fed talk on interest rates is probably weighing on the market, but IMO it’s futile to try to understand or explain what the market is doing day to day. There are so many factors that affect the market that it’s impossible to attribute a fractional move on any one thing. And there’s really no point in it.

Just understand that the market doesn’t move in a straight line. Step back rather than watching each see saw movement like a cat watching a laser pointer; you will just end up with whiplash. Regard pullbacks or profit-taking as a healthy thing. We are in a huge up-trend and the market needs to take a breather every once in a while to prepare for (hopefully) the next move up. If the market moves down far enough and fast enough to break the trend, then it might be time for concern.